You need to have $35,000 on hand to buy a new Lexus five years from today. To achieve that goal, you want to know how much you must invest today in a certificate of deposit guaranteed to return you 3% per year. To help determine how much to investment today, you will use:
A) present value factors
B) annuity value factors
C) present value factors of an annuity
D) future value factors of an annuity

Question

Quizplus · Accepted Answer

To determine how much to invest today, we need to use present value factors which take into account the time value of money and adjust for inflation. An annuity isn't relevant in this scenario as we are only looking for a lump sum payment five years from now. Future value factors of an annuity would only come into play if we were looking to calculate the future value of regular investments over time. Therefore, the best choice is present value factors (A).

You Need to Have $35,000 on Hand to Buy a New